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FINANCIAL MANAGEMENT-IIPractical Project I

By- Mrudula Gungolu -22012 Soumen Kundu -22028 Soumya Mohapatra -22030 V.S.N.S. Meghana -22038 Vinay Kumar Pandey -22040 B. Sandeep -M8-01 Sushant Sasmal -M8-09

ObjectiveAnalyzing the annual report of a company .Identifying the companys fixed and variable costs.Getting information about companies capital structure and interest paid.Calculating companys operating and financial leverageINTRODUCTIONCapital Structure : It is used to represent the proportionate relationship between debt and equity. It influences shareholders return and risk.It is planned at the time of its promotion.Operating Leverage : Operating leverage affects a firms operating profit (EBIT)Financial Leverage : Financial leverage affects PAT or the EPS.Degree of Operating Leverage : It is defined as the percentage changes in the earnings before interest and taxes relative to a given percentage change in sales.

Degree of financial Leverage : It is defined as the percentage change in EPS due to a given percentage change in EBIT.

Degree of combined Leverage : The Degree of Financial and operating leverages are combined to see the affect of total leverage on EPS associated with a given change in sales.Questions to be answered while making a financial Decision ?How should the investment project be financed ?Does the way in which the investment projects are financed matters ?How does the financing affect the shareholders risk, return and value?Does there exist an optimum financing mix in terms of the maximum value to the firms sharholders?Can the optimum financing mix be determined in practice for a company ?What factors in practice should a company consider in designing its financing policy ?Pecking Order Theory Companies prioritize their sources of financing (From internal financing to Equity).According to the law of least effort or least resistance, preferring to raise equity as a financing means of Last resort.Internal funds are used first and when that is depleted debt is issued and when it is not sensible to issue anymore debt equity is issued.COMPANY OVERVIEWAshok Leyland Indian Automobile manufacturing company.Location : Chennai, IndiaFounded : 1948Seconded largest commercial vehicle manufacturer.Market share :28% in 2007-08

FINANCIALSMARKET CAP (RS CR)5,121.80BOOK VALUE (RS)16.74FACE VALUE (RS)1.00DIV YIELD.(%)3.12%EARNINGS PER SHARE1.63FINANCIAL DETAILS

Total Liabilities7,959.93Total Assets7,959.92Total Income12,561.13Total Expenses11,332.75Net Profit433.71Fixed and variable cost:YEARMar '13Mar '12Mar '11Mar '10Mar '09Raw Materials8,925.149,702.208,406.175,534.244,554.36Power & Fuel Cost86.0076.7565.1944.4738.42Employee Cost1,075.511,039.07974.60671.61566.26Other Manufacturing Expenses0.0099.6786.0445.5150.30Selling and Admin Expenses0.001,001.27857.00645.89495.68Miscellaneous Expenses1,246.10334.400.190.160.13Preoperative Exp Capitalized0.00-25.09-24.06-15.25-8.20Total Expenses11,332.7512,228.2710,365.136,926.635,696.95Variable cost:Fixed cost:

Interest376.89255.25188.92101.85157.30Depreciation380.78352.81267.43204.11178.41CAPITAL STRUCTURE OF ASHOK LEYLANDCapital Structure (Ashok Leyland)PeriodInstrumentAuthorized CapitalIssued Capital- P A I D U P -FromTo(Rs. cr)(Rs. cr)Shares (nos)Face ValueCapital20122013Equity Share400266.0926606766341266.0720112012Equity Share300266.0926606766341266.0720102011Equity Share200133.0513303383171133.0320092010Equity Share200133.0513303383171133.0320082009Equity Share150133.0513303383171133.03Mar '13Mar '12Mar '11Mar '10Mar '09Total Share Capital266.07266.07133.03133.03133.03Equity Share Capital266.07266.07133.03133.03133.03Share Application Money0.000.000.000.000.00Preference Share Capital0.000.000.000.000.00Reserves4,189.042,632.342,523.652,190.101,976.00Revaluation Reserves0.001313.361306.281333.171364.86Networth4,455.114,211.773,962.963,656.303,473.89Secured Loans1,903.46960.431,272.22788.12304.41Unsecured Loans1,601.361,435.101,385.971,492.331,657.57Total Debt3,504.822,395.532,658.192,280.451,961.98Debt-Equity Ratio:YearMar '13Mar '12Mar '11Mar '10Mar '09Net worth4,455.114,211.773,962.963,656.303,473.89Total Debt3,504.822,395.532,658.192,280.451,961.98Debt Equity Ratio0.790.8310.980.93Interest Payment Details:YearMar '13Mar '12Mar '11Mar '10Mar '09PBDIT1,228.381,298.031,258.16850.74544.16Interest376.89255.25188.92101.85157.3PBDT851.491,042.781,069.24748.89386.86Interest coverage ratio:YearMar '13Mar '12Mar '11Mar '10Mar '09PBIT847.6945.22990.73646.63365.75Interest376.89255.25188.92101.85157.3Interest Coverage1.483.685.235.832.27Companys Operating and Financial Leverage:YearMar '13Mar '12Mar '11Mar '10Mar '09PBIT847.6945.22990.73646.63365.75Earnings Per Share (Rs)1.632.134.753.181.43Sales Turnover12,481.2014,134.0812,393.368,071.746,826.96Degree of Operating Leverage (DOL):YearMar '13Mar '12Mar '11Mar '10% change in PBIT-0.1033-0.04590.53210.7680% change in Sales-0.116940.1404560.5354010.18233DOL0.88-0.330.994.21Degree of Financial Leverage (DFL):YearMar '13Mar '12Mar '11Mar '10% change in EPS-0.2347-0.55160.49371.2238% change in PBIT-0.1033-0.04590.53210.7680DFL2.2712.010.931.59

Degree of Combined Leverage (DCL):

YearMar '13Mar '12Mar '11Mar '10% change in EPS-0.23474-0.551580.4937111.22378% change in Sales-0.116940.1404560.5354010.18233DCL2.01-3.930.926.71Conclusion:We have analyzed the annual report of Ashok Leyland using the capital structure concepts. The interest coverage ratio of the company is showing decreasing pattern and the debt equity ratio is also decreasing which means though the companys revenue is decreasing. We have also analyzed the operating and financial leverage of the company. In this we have seen that the sales turnover of the company is decreasing. This may be attributed to economic slowdown and increasing variable costs like material cost and employee expenses. The operating leverage is increasing whereas the financial leverage is decreasing which means earnings per share is decreasing at higher rate than EBIT, which is also decreasing but at a lower rate. The company should focus on decreasing its debt as interest coverage ratio is decreasing. It should find ways to increase the sales, so that the company can increase its profits so that it can retain part of its earnings and utilize it for further growth and simultaneously increase shareholders wealth by providing higher dividends.